Sri Lanka caught in a debt trap: Report

Sri Lanka is one of 22 countries currently in government external debt crisis, a new analysis by the Jubilee Debt Campaign undertaken with the assistance of the European Union revealed last week. According to the July 2015 report titled ‘The new debt trap’ Sri Lanka has been included amongst countries such as Greece, Armenia, Belize, Costa Rica, Croatia, Cyprus, Dominican Republic, El Salvador, The Gambia, Grenada, Ireland, Jamaica, Lebanon, Macedonia, Marshall Islands, Montenegro, Portugal, Spain, St Vincent and the Grenadines, Tunisia, Ukraine, Sudan and Zimbabwe.

Jubilee’s analysis defines countries already in debt crisis as those with a significant net debt (more than 30% of GDP), and those having a high current government external debt payments (more than 15% of government revenue). The analysis shows that Sri Lanka’s Net debt of whole country is at -55 (minus equals debt and plus equals a surplus), Current government external debt payments, proportion of revenue (2013) stands at 15.8%, Government external debt as a proportion of GDP at 34% and Sri Lanka’s Current account balance, percentage of GDP (Average 2013-2015) is a deficit of 3.2.

“There are 22 countries which currently have high government debt payments leading to large amounts of money leaving their country each year, along with an overall net debt with the rest of the world. Regions particularly affected are Europe (Croatia, Greece, Ireland, Macedonia, Montenegro, Portugal, Spain and Ukraine) Central America and the Caribbean (Belize, Costa Rica, Dominican Republic, El Salvador, Jamaica, and St. Vincent and the Grenadines) and North Africa and the Middle East (Lebanon and Tunisia). The Gambia in West Africa is also spending 15% of government revenue on foreign debt payments, despite qualifying for debt relief under the Heavily Indebted Poor Countries initiative in 2007.

Sudan and Zimbabwe do not have high government debt payments because they are both in default on much of their debt. Their overall debt is unpayable. Both are currently trying to enter debt relief initiatives, but have not been accepted yet by Western creditor countries,” the analysis said.

Meanwhile, the report noted that fourteen other countries are also spiraling towards government debt crises. The countries at high risk of government external debt crisis listed by the report were Bhutan, Cape Verde, Dominica, Ethiopia, Ghana, Laos, Mauritania, Mongolia, Mozambique, Samoa, Sao Tome e Principe, Senegal, Tanzania and Uganda.

“International debt has been increasing since 2011, after falling from 2008-2011. The total net debts owed by debtor countries, both by their public and private sectors, which are not covered by corresponding assets owned by those countries, has risen from $11.3 trillion in 2011 to $13.8 trillion in 2014. We predict that in 2015 they will increase further to $14.7 trillion.

Overall, net debts owed by debtor countries will therefore have increased by 30% – $3.4 trillion – in four years,” the Executive summary of the report said adding that this increase in debts between countries is being driven by the largest economies whilst an underlying cause of the most recent global financial crisis, which began in 2008, was the rise in inequality and the concentration of wealth.

“This made more people and countries more dependent on debt, and increased the amount of money going into speculation on risky financial assets. Increasing inequality reduces economic growth as higher income groups spend a smaller proportion of their income on goods and services than middle- and low-earners. To tackle this problem, countries relied on either increasing debts, or for the countries which are the source of the loans, promoting exports through lending. This allowed growth to continue even though little income was going to poorer groups in society,” the report further added.